ALTERNATIVE FINANCING MODELS COUNTRY EXPERIENCES –SRI LANKA November 2014.
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Transcript of ALTERNATIVE FINANCING MODELS COUNTRY EXPERIENCES –SRI LANKA November 2014.
Regulator-Central Bank of Sri LankaTwo types of Banking Licenses
1. Licensed Commercial (24 Banks)
2. Licensed Specialized (9 Banks)Non-Banking Financial Institutions
1. Finance Companies
2. Leasing CompaniesUnit TrustsVenture Capital CompaniesSuperannuation Funds Insurance Funds
FINANCIAL SECTOR LANDSCAPE
DFCC Bank
Benchmark treasuries ranging from 3 months to 30 years
Recent listed private and public debt ranging from 3 months to 10 years
Policy rate corridor determining the short term rates (SDFR 6.50% & SLFR 8.00%)
SDFR - Standing Deposit Facility Rate
SLFR - Standing Lending Facility Rate
INTEREST RATE STRUCTURE
Spot Rate - USD/LKR 130.70
EXCHANGE RATE STRUCTURE FORWARD FX PREMIUMS
Tenure Premium (LKR)
As a Percentage
3 Month 1.45 4.31%
6 Month 2.55 3.91%
12 Month 5.00 3.80%
Market Capitalization - LKR 3,090bnPE Ratio - 19.3xAll Share Price Index- 7,265.9S&P Sri Lanka 20 Index - 4,029.4Listed Debt Issued - LKR 162bn
Source: Colombo Stock Exchange, data as at 29th October 2014
CAPITAL MARKETS METRICS
INSTRUMENTSPreference sharesOrdinary voting and
non-voting sharesDebenturesBondsCommercial papers
INVESTORSMany institutional
investors, both local and foreign
Local Superannuation funds and Insurance Companies
Retailers
CAPITAL MARKET STRUCTURE
LOAN MARKETBilateral and multilateral loans
in both Sri Lankan Rupees (LKR) and foreign currency from local and foreign sources
Lenders locally are typically Superannuation Funds, Insurance Companies, Large State owned Savings Banks
Lenders internationally are Western and Asian DFIs
BANKING MARKETDeposit franchise-Through own
branches and commercial banking subsidiary
LOAN AND BANKING MARKET-SOURCES
Governed by loan covenants Novel delivery channels
The debt/equity choiceCurrent Status
Most DFIs in Sri Lanka are tightly held by the state. DFCC is a widely held quoted company. There are only four DFIs in Sri Lanka out of which three are state owned.
State banks are given budgetary allocations at times but most often manage with deposits and borrowings from the local debt capital markets.
Options
IPOs for non-quoted DFIs (The state owned DFIs will not list in the near future)
Rights Issues for quoted DFIs
Criteria
Objectives of the DFI and target markets served would determine the choice of equity or debt.
A Rights Issue would be used to fund inorganic growth of a DFI into identified growth opportunities.
FINANCING MODALITIES FOR DFIs
FINANCIAL MARKET FUND MOBILISATION
A popular mode of fund raising which currently yields tax benefits to investors
Private placements vis-à-vis Public Issues
A fair selection of Investment Bankers to structure transactions
A wide institutional investor pool and developing retail pool
FINANCING MODALITIES FOR DFIs
Deposit Taking
CompetitionNine LSBs including 3 dedicated savings banks, 24 LCBs, 48 LFCs SLCs, Unit Trusts, Rural Banks, Thrift and Credit Cooperative Societies and Insurance Funds
Financial InclusionMobile banking as opposed to branch banking with over 100% mobile telephony penetration in Sri Lanka
LSB – Licensed Specialized Bank
LCB – Licensed Commercial Bank
LFC – Licensed Finance Company
SLC – Specialized Leasing Company
FINANCING MODALITIES FOR DFIs
FUNDING STRATEGYKEY PARAMETERS
Decisions1. Currency2. Tenor3. Variable/ Fixed
Rate4. Instrument
Choices on Sources
1.LKR –Debentures/Deposits/ Loans2.Foreign Currency-Bonds/ Deposits
13
Recognition
Implemented 3 credit lines as an Administrative Unit for Renewable Energy projects
Received a ‘Highly Satisfactory’ rating for exceptional performance for each project
Apex Body for credit component of Plantation Development Project
Apex Body for DFCC V credit line for SME in the North & East
Administered Post Tsunami Rehabilitation Project
Currently implementing EUR 90 million SME & Green Energy Global Loan
DFCC’S ROLE AND RELATIONSHIPS IN THE FUNDING SPHERE
Name of Award Position Organizer Date
Asset and Liability Management Competition 2012 Best in Risk Management The Netherlands Development Finance Company (FMO), German Development Corporation (DEG) and PROPARCO
Feb 2012
Development Finance Award Best in Local Economic Development Association of Development Financing Institution in Asia and the Pacific (ADFIAP)
May 2013
Vision Awards 2012 Gold Leage of American Communications Professionals July 2013
Karlsruhe Sustainable Finance Award Outstanding Sustainable Project Financing European Organisation for Sustainable Development
July 2013
ARC Awards 2013 Grand Award – Best of Country Mercom Inc - USA August 2013
Best Web 2013 Gold – Corporate, Banking and Insurance website Silver – Best Sri Lankan website
LK Domain Registry – Sri Lanka August 2013
Achievements
Credit lines (either bilateral or multilateral) targeted for specific sectors such as renewable energy and SME
Sector identification and floating of specialized funds to cater to priority sectors
Securitization of loan receivables due to exposure limits
ALTERNATE FUNDING MODELS
Growth strategy in line with government’s five hub focus in terms of being in the forefront of related
capital asset funding
Funding strategy based on the three pillars of deposit and loan markets, financial markets and
specialized funds
Negotiation of specific state guidance in funding priority sectors
COUNTRY DFI STRTATEGY
Footnote
ECONOMIC AND GROWTH STRATEGY OF THE COUNTRY
19
Financing Opportunities 5 +1 Hubs
Government strategy of developing the 5 + 1 Hubs:
1. Maritime
2. Aviation
3. Energy
4. Knowledge
5. Commercial
+ Tourism
Major infrastructure developments (harbors, airports, expressways & highways and urban renewal are a component of this strategy
End of conflict in 2009 has resulted in resurgence in tourism and hotel development
Partnerships with established and emerging DFI giants in sourcing direct business
opportunities
Innovative financing through facilitated funding models such as equipment leasing
Usage of vehicles such as Private Equity funds with reasonable exit mechanisms
Actively seek local currency funding guaranteed by leading global DFIs
FUNDING MODELS -WAY FORWARD
Sector composition a trade off between country strategy alignment and risk
Specialised lending as a competitive advantage
Development portfolio management skills in infrastructure and other emerging sectors
Migration of best practice in the region through training and resource sharing
arrangements
GOALS OF SRI LANKAN DFIs-2020